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Management Report

Management reports, briefs issued by Samsung Economic Research Institute

Evolution of Korea's CEO System

Evolution of Korea's CEO System


Aug. 14, 2006

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The chief executive officer (CEO) is the most critical intangible asset determining corporate competitiveness. Amid rapidly changing environment and growing uncertainties in the business world, corporate performance is increasingly affected by strategic decision-making, which is one of the most fundamental responsibilities of CEOs. This is why their role is becoming more and more important in business landscape.

Competent and reliable CEOs are an invaluable asset not only to the corporate world but also to the nation. They contribute to economic growth by searching for and fostering new business that turns into a new growth engine for the economy. Globalization, digitalization and industrial convergence all boost demand for competent CEOs.

Despite their growing importance, however, there has neither been full-fledged research on issues related to their status nor a well-founded debate on how their role should evolve. Before the financial crisis of 1997, questions like CEOs' capabilities or their influence on corporate management were kept mostly shrouded. Not much effort has been made to analyze these issues objectively. Even after the crisis, Korea hasn't much discussed how its CEO resources should be developed. Korean business experts have sometimes argued that Korea should keep corporate management separate from corporate ownership as has been the case of many business operations in Korea. At the same time, they praise the case of foreign CEOs without thorough analyses.

Time has now arrived for Korea to consider training future managers through objective analysis of CEO institution: the overall supporting system covering a variety of CEOs, their relations to corporate governance system, selection and training of CEOs. Along with corporate governance and business management, the job of chief executive officer is an essential feature of the successful corporate management system.

This report analyzes characteristics and changes occurring in Korea's corporate CEO system, focused on companies listed on the Korea Stock Exchange from 1986 to 2004. During the period, 704 companies were listed on the market but this report excludes banks, state-owned companies and other companies that failed to provide information on their CEOs. Our analysis therefore is limited to CEOs from 519 companies.

This report divides the system governing CEOs into three groups: 1) Type I (owner CEO) companies that have more than one owner manager and no non-owner manager; 2) Type II (owner CEO plus non-owner CEO) companies represented by more than one owner manager and more than one non-owner manager; and 3) Type III (non-owner CEO) companies represented by more than one non-owner manager.

This report classified the 519 companies into four categories based on their 2004 sales: Category I companies with sales of over 1 trillion Won; Category II companies with sales between 300 billion Won and 1 trillion Won; Category III companies with sales of more than 100 billion Won and up to 300 billion Won; and Category IV companies with sales of less than 100 billion Won. After calculating the percentage of each group for year 2004, we applied the percentage to each year from 1986 to 2003 to form yearly four groups.

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